VAT on Gold Trade in UAE

Recent changes in the Value Added Tax (VAT)system in the United Arab Emirates have affected the local gold, diamond, and precious metals market to a large extent. Special VAT exemptions on gold transactions, especially for registered businesses, help the UAE maintain its position as the world's greatest hub for gold trade. This is directly in line with the long-term goals for the economic future of the UAE, by strengthening its position as a superpower in the global gold trade. With the decline in the costs of operations associated, trading as well as investing in gold was more attractive than ever before, with the UAE firmly placed as one of the top global trading destinations for the commodity.
This blog provides a step-wise breakdown on VAT on gold in the UAE, including new updates for the current year, eligibility, compliance, and practical tips when dealing with the new regulatory scenario.

What Are The New Policies of VAT on Gold in the UAE?

Federal Decree-Law No. 8 of 2017 is the general rule for UAE VAT, where an amount of 5% is levied as VAT on most commodities and services. It has therefore changed since this is now also, under Cabinet Decision No. 43 of 2020, containing specific exemptions relating to business-to-business transactions between VAT-registered businesses on business-to-business operations in gold, silver, and platinum. Again, these are designed to drive B2B business between the trading activities of businesses and thus enhance the role of the UAE as the premier precious metals trading hub globally.
More importantly, this relief only pertains to the sales of gold, silver, and platinum among businesses at a given level of purity, and does not extend to direct retail sales for the general population. Eligible business enterprises benefiting from this relief shall include lessening costs associated with doing transactions and increasing their margin as well.

The Important Advantages of Obtaining this UAE VAT Relief over Gold:

Several benefits from the exemption on VAT of transactions in gold within the UAE benefiting businesses and the national economy generally are as follows:

1. The marketplace becomes more attractive to businesses that trade in high-purity precious metals as some business-to-business gold transactions will be VAT-free under the new regulation. In that regard, the trading in gold becomes cheaper; therefore, increasing volume and liquidity in the market.
2. With reduced VAT-related costs, the UAE gold business can cut down on operating costs, thereby increasing trading volumes. This has a positive effect on the UAE-based traders and brings more international investors into the UAE to carry out global gold trading activities.
3. It is one of the tools for economic diversification under Vision 2021, which the UAE is embracing. It will now make the country more favorable to global companies for the growth of the precious metals industry, and a direct contribution to the expansion of the economy by making it more favorable to foreign investors and traders.

Tax refund in UAE

Conditions to be Eligible for Exemption of VAT on Gold Transactions

To enjoy the exemption of VAT on gold in UAE, there is a set of requirements that must be met as listed under the VAT Law Federal Decree No. 8/017 and the Ministerial Decision No. 43/2020.

• High Purity Metals: VAT only taxes gold, silver, and platinum when the percentage purity is above 99%. The implication is that VAT only accords an exemption for very high-purity metals of investment grade.
• Investment-Grade Products: Only investment-grade commodities such as bars, coins, and bullions qualify as VAT-exempt commodities. They need to have purities within permissible limits set by the UAE FTA.
• Registered Businesses: The exemption is targeted at transactions between VAT-registered businesses. The supplier and the recipient should be VAT registered, and their transactions should meet the requirements of the VAT law.

Compliance and Documentation Requirements

Business firms that seek to benefit from VAT exemption are obligated to observe strict guidelines; that is, documentation must be complete and accurate, and also current. Federal Tax Authority regulation ensures transparency in accountability in a transaction involving VAT as:

• Transaction Records: Businesses must keep careful and accurate records of all kinds of transactions of gold including VAT invoices.

• Proof of VAT Registration: There are also provisions stating that one must be proving the valid records of both vendors and buyer of their vat registration status; otherwise, the business cannot get into the process that is covered from vat tax under this law of vat in Qatar.
• Compliance with the tax laws of UAE: Businesses are compulsorily required to comply with the tax laws set under Federal Decree-Law No. 8 of 2017. Meaningful VAT filings must be maintained; VAT returns must be submitted on time; and all other regulations formulated by the FTA must be held.

Failure on the above aspects will levy a penalty and loss of the benefits available on the VAT exemption.

Tax registration in UAE

VAT Exemption Impact on Gold In The UAE

There is also a VAT exemption provided for importation and exportation of gold, platinum, and silver. The international trade, therefore, encourages further international trading. Dubai stands to benefit by becoming an international center for trading precious metals. In this case, the UAE saves on transaction costs, hence, making it better positioned to face the international competition in the markets for precious metals.

Practical Considerations in Working Through the Emerging VAT Regime in the UAE

Business operations in gold or considering business entry into the UAE gold marketplace will require working through new tax policies and continued compliance. For these, one needs to address the following main strategies:

• Keep Updated: The rules change on VAT too. Business units need to have periodic access or subscriptions to authorities, like UAE Cabinet and the FTA; alternatively, appoint a tax Consultant in dubai for regular consultancies to guide on any updating regulations.
• It must be well-documented: The greatest factor in the exemption of VAT is proper documentation. This must reflect that the sale has occurred, proof that the seller is VAT-registered, and records showing the gold used to have passed its purity tests.
• Track market trends: The supply, demand, and prices would not be constant due to the exemption of VAT in the sales. Conscious decisions when it comes to trading will be made once these market trends have been tracked.

Jewelry Making Charges: Gold VAT Public Clarification

In 2022, the FTA published a public clarification (VATP029) on VAT in relation to the application of VAT on gold-making charges. It is an aspect that deals with businesses operating within the gold jewelry industry, thus clarifying the VAT to be applied to the service aspect of gold dealings. The main characteristics are highlighted below:

• Composite Single Supply: If a gold trade is made in one price with making charges it is considered as a composite supply. If gold is the major component, the total supply will be charged to VAT under the RCM.
• Multiple Supplies: If making charges are recovered separately, VAT has to be recovered on the making charges at the standard rate of 5%, and VAT recovered on gold is under the reverse charge mechanism.
• Exemptions: Exports of gold and investment-grade metals, which satisfy the purity requirement, have no VAT levied, which also makes them more attractive in international markets.

Reverse Charge Mechanism on Gold Trade

This scheme has been introduced under Cabinet Decision No. 25 of 2018, and reverse charge mechanism has been allowed in certain gold transactions, provided they comply with the following conditions:

• The recipient is VAT-registered at the time of the transaction.
• The recipient uses the gold for manufacturing, production, or resale purposes.
• Declaration by Supplier: The supplier must be given a declaration by the receiver to be VAT-registered and what use he will make of the gold.

If the above are satisfied, the receiver shall be held liable for accounting for VAT, and the supplier shall not be liable to pay VAT upon the transaction.

Important Points to Remember on Gold VAT Exemption in the UAE

• VAT exemption only on 99%+ pure gold and can be availed only on B2B supplies between VAT registered entities.
• The conditions of documentary compliance and eligibility needs to be complied with to claim the VAT exemption
• The reverse charge would apply only on the gold goods and not on services such as making charges unless and otherwise treated as composite supply

Conclusion:

This is a huge economic advantage for businesses and traders due to the exemption of VAT on transactions involving gold in the UAE, and this country has become one of the best global centers for gold trading. Knowledge of new policies, eligibility, and following compliance rules would make traders and investors maximize benefits from VAT exemptions and contribute towards the growing status of the UAE as one of the market leaders worldwide in the gold market.

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Frequently Asked Questions (UAE VAT on Gold)

What is the UAE rate of VAT on gold?

The UAE has imposed VAT on gold @5% however 99% pure or higher known as investment-grade gold is exempt from VAT on satisfaction of specific conditions.

How are gold transactions treated under UAE VAT law?

VAT in the UAE is imposed at the point of sale. On the other hand, gold which is 99% pure or used for investment purposes may fall under the reverse charge mechanism.

Are there any VAT exemptions for gold in the UAE?

Yes, VAT exemption applies to gold with a purity of 99% or higher, such as bars, coins, and bullion, particularly when used for investment.

How can VAT be reclaimed on gold purchases?

Yes, VAT on gold purchases can be reclaimed if the purchase meets the criteria for VAT refunds, particularly for goods purchased for export.

What is the VAT compliance on gold trade in the UAE?

Businesses need to maintain a record of detailed transactions and proof of VAT payments. In the event of seeking exemption, eligibility should also be documented; a reverse charge mechanism followed.

What Are the Steps to register for VAT as a gold trading business in the UAE?

Register via the Federal Tax Authority (FTA) by providing details about your business and gold transactions and pay the required VAT while filing regular returns. 

What are the UAE VAT Law non-compliance penalties on gold and how to avoid them?

Non-compliance with VAT law in the UAE includes failure to pay VAT, incorrect VAT filings, or late registration that can result in penalties/fines. Accurate records and up-to-date knowledge of VAT rules are essential to avoid penalties.

Is gold import liable to VAT in the UAE?

Yes, with certain exceptions that may apply specifically to investment-grade gold that fulfills purity levels, gold import is generally liable for VAT under the reverse charge mechanism.

How to calculate UAE VAT on gold ornaments?

Apply the regular VAT rate of 5 percent on the price of gold ornament. If they are 99 percent pure in quality, a VAT exemption rule may apply-therefore first check the rule.